Page says Canada's fiscal structure is 'Not Sustainable'

An in-depth analysis of Canada's fiscal structure shows the system is not sustainable said Canada's Parliamentary Budget Officer, Kevin Page. Prime Minister Stephen Harper appointed Page to ensure government accountability.

Ottawa, ON - Kevin Page released an anticipated report that examined Canada's revenue streams and expenditures, looking well into the future. Titled Fiscal Sustainability Report, Page again sounded an alarm he has been regularly ringing throughout the short duration of 2010 - that without planning and prudence, Canada's structural deficit is here to stay for a very long time. The report begins with a blunt assessment of Canada's fiscal situation.

"Overall, PBO’s analysis indicates that:

1. The Government’s current fiscal structure is not sustainable over the long term. That is, under the current fiscal structure, the Government’s debt relative to GDP is projected to increase on a substantial and sustained basis over the long term.

2. To close the fiscal gap, permanent fiscal actions – either through increased taxes or reduced program spending, or some combination of both – amounting to 1.0 and 1.9 per cent of GDP are required under the baseline and alternative scenarios respectively. Based on historical experience, the estimated amounts of fiscal action required are achievable.

3. The fiscal action required to achieve sustainability does not need to be taken immediately. Implementing the necessary measures may be delayed until the economy has fully recovered without unduly increasing the fiscal gap. However, a significant delay in implementing fiscal actions substantially increases the required amount of corrective measures."

The Conservative Finance Minister, Jim Flaherty, has thus far dismissed Page's warnings. Flaherty has calculated that adding an additional $164 billion to the overall national debt by the end of the 2015 fiscal year wouldn't impede Canada's ability to pay down the deficit. He had forecast that

"... Budget deficits would gradually shrink over the medium-term horizon, from $56 billion this year to $5 billion in 2015, if the economy grows and Ottawa controls its spending."

Flaherty has revised the predicted growth for Canada in 2010 to 2.6%, up from the previous prediction of 2.3%. Indeed, it is widely anticipated that Flaherty will

"... make sure that this year's budget is not a political hot potato ... hinting ... that the budget will not contain any new major spending initiatives or new major tax cuts but instead will simply be the second-year of the two-year economic stimulus plan that was announced in Budget 2009."

But there is more affecting Canada's fiscal stability than the deficit, said Page in his report. Page's report zeroed in on Canada's aging population, a situation that will impact Canada's long-term sustainability in several ways. He forecast the next 20 years would have the greatest impact, but Canada's aging population will have impacts on many areas. Longer life spans and less children being born to replace aging workers, as well as restricted immigration means there will be less workers in the work force. That means less revenues for the government coffers. Combine that with an increased need for government services, from health care to income supplementation, Canada's demographics are about to plunge Canada into a situation many other European countries have already begun to experience. Page's cautions on planning for Canada's demographics is not anything new. In 2005, the Organization for Economic Co-operation and Development (OECD) released a report on Canada's working population, saying

"...Population ageing is occurring less rapidly in Canada than in many other OECD countries. This is partly the result of a high rate of immigration relative to the OECD average and a total fertility rate that is not projected to fall as low as in Japan or some southern European countries. Nevertheless, the proportion of the population aged 65 and over to the working-age population (20-64) is

expected to rise from 20% in 2004 to just over 45% in 2050. Consequently, there is a risk that a combination of slower labour force growth and a sharp rise in the number of workers exiting the workforce (as the baby-boom generation retires) could affect economic growth over the next few decades."

The C.D. Howe Institute just released its 2010 Shadow Budget, urging Canada to eliminate all deficits by 2014-2015. The Institute advises the deficit can be reduced, not through raising taxes but by cutting spending. The Institute also assumed that there would be consistent growth in revenues over the next five years from employment insurance premiums and taxes, an assumption that depends on a steady increase in job creation and employment. Page released his report to the public of Canada. He was not able to table his report in Parliament as he normally would have because Prime Minister Stephen Harper prorogued Parliament until March 3rd.